Vivendi’s CanalSat, Telco Free in Carriage Deal as Canal Plus Targets Mass Viewership

John Hopewell

Vivendi’s CanalSat, the multi-channel satellite-IPTV service of pay-TV operator Canal Plus, has struck a potentially game-changing deal with French telco Free, owned by Iliad, which at a stroke adds up to 3 million subscribers to CanalSat’s client base.

The deal signals a redefinition of Canal Plus, Europe’s second biggest pay-TV operator. For the first 30 years of its existence, Canal Plus has positioned itself as an upscale, substantially priced service for France’s cultured classes; its subscriber base in France was 5.46 million at the end of June, compared to 12.4 million for Sky in Britain. Canal Plus now appears to be reaching out, like Sky, to the masses.

Under the terms of the deal, 50 channels from CanalSat Panorama, including Eurosport, Disney Channel and Nickelodeon, will be included automatically in Free Revolution’s triple-play package of Internet, telephony and TV as its pay-TV element, priced at €39.99 ($44.83). CanalSat adds to Free Revolution’s previous TV offer, sold at €37.97 ($42.57), of 226 channels that Free had put together itself. Free Revolution has 3 million triple-play customers.

As part of its new €39.99 pricing, triple-play Free Revolution will also offer clients myCANAL app, “with access to more than 100 channels for live viewing and over 8,000 content items on demand,” according to a Free statement.

The statement added: “In the near future, Free will contact existing Freebox Revolution subscribers, who will be migrated to the new offering without any migration costs and can choose to keep their current offering at the unchanged price of €37.97 per month.”

Free’s CanalSat offer is way below the current €24.90 ($27.91) price tag for CanalSat Panorama as a standalone satellite/IPTV service offering about 100-plus channels.

The CanalSat-Free deal offer comes on the heels of Vivendi’s announcement of a  €300-million ($337 million) cost-cutting program at France’s Canal Plus, unveiled Aug. 25. Like the cuts, the new deal is designed to offset losses at Canal Plus’ French operations, which Vivendi estimates at €264 million ($296.7 million) in 2015 for the six Canal Plus-owned channels in France.

Just how much of a new revenue source the Free deal could provide is another matter. Only an estimated 10% of Free Revolution clients are CanalSat subscribers. So there is little risk of cannibalization.

“No details have been provided regarding the costs allocation between Canal and Iliad, but we assume that Canal will cover the main part of the discount,” said Jean-Baptiste Sergeant, an analyst at stockbroker MainFirst Bank.

He added that Canal Plus should benefit the most from this agreement as it could potentially gain all the Freebox Revolution subscribers. “However, the overall impact on Canal revenues should be limited since this offer will strongly weigh on Canal’s Average Revenue Per User,” Sergeant said.

Employing a “revenue sharing” model, Canal Plus’ returns on the Free deal will be more than €2 ($2.2) a month [increase in Free Revolution’s price], said a Canal Plus spokesperson.

Allowing Canal Plus content value to be judged by its value has part of a telco triple-play offer rather than that of a premium pay TV, the deal also serves as a basis for growth.“With a much larger client base to work on, it will be easier to upgrade customers to Canal Plus’ premium offer,” the spokesperson added.

The Free agreement forms part of what Vivendi recognized in its half-year results as a “redefinition” of its French TV operations. From Aug. 1, French telco Orange is offering its fiber-optic clients high-definition feeds of all its CanalSat Panorama channels, save the sports services.

In mid-October, Vivendi will announce a thoroughgoing overhaul of Canal Plus’ channel package offer, segmented “to address every type of consumer,” the company said in presenting its half-year results.

The CanalSat-Free arrangement is driven by tectonic shifts in France’s telecom sector. Patrick Draghi’s telecom Altice has been driving into content acquisition via Zive, the VOD service of SFR, France’s second-biggest mobile telephone company, which it bought from Vivendi in 2014. Canal Plus has struggled to sell CanalSat to Free and other French IPTV operators that have traditionally offered 200 TV channels on a non-exclusive basis. Now, Orange and Free need to improve their triple-play content offer.

But if French telcos need content, Canal Plus is now angling for a far broader subscriber base. “Pay-TV is a matter of fixed cost. The bigger the base, the more you can monetize it,” said the Canal Plus spokesperson.

A “more for more,” departing from a low basic rate, takes Canal Plus nearer to Sky’s U.K. business model, which Canal Plus has traditionally rejected. The move into a mass subscriber base also reads from Netflix’s playbook.

“Netflix’s strategy has been to pump up subscriber numbers until it gains sufficient bargaining muscle to negotiate down content costs. Raising pricing, it has then turned a profit,” said one analyst.

That now seems to be a strategy that Canal Plus is emulating.

Canal Plus’ mainland France pay-TV revenues dropped 5% to €1.627 billion ($1.8 billion) second half 2016 vs. same period in 2015. Canal Plus also lost 509,000 subscribers in France over the same period.

Taking in its international operations and Studiocanal, the Canal Plus Group still made a profit for the first six months of 2016 of €288 million ($324 million). But income plunged 26% compared to first-half 2015  “notably as a result of the increased losses suffered by Canal Plus channels in France,” Vivendi said in its results presentation.

Related stories

Vivendi Becomes Ubisoft's Majority Shareholder, Will Seek Board Representation in 2017

Telefonica, Vivendi Clinch Studio Plus Latin America Distribution Deal

Vivendi Joins Forces With Serial Eyes Program

Get more from Variety and Variety411: Follow us on Twitter, Facebook, Newsletter